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FedEx foes may gain if labor woes deepen

So far, the cataloger hasn't had any problems because of
the FedEx fray, but it's prepared to go to the competition if
complications occur closer to the December holiday.

"Right now, we are not reacting, but if need be, we will
shift to the overnight delivery service of the U.S. Postal
Service," said David Hochberg, VP-public affairs for Lillian
Vernon.

About half of Vernon's deliveries are handled via FedEx,
with the rest done by the postal service.

If the labor situation worsens, this could make the
holiday catalog season even rougher. Already, catalogers must
cope with higher paper and postage costs that will ultimately
affect their bottom lines. But now, the industry is faced with
potential delivery problems that could add to operation costs this
holiday.

"The other carriers would gleefully pick up the volume
that Fed-Ex loses, but it's a big chore for the catalog
companies," said Maxwell Sroge, an Evanston, Ill.-based catalog
consultant. "The last thing catalogers need is an increase in the cost of
package delivery."

Many catalogers have FedEx contracts, and if they were
forced to shift business to alternative carriers, the cost would
be greater.

"Overnight delivery is a major promotional vehicle for
catalog companies," Mr. Sroge said. "It has enabled them to
overcome one of the biggest handicaps that catalogers have over
retail stores--the immediacy of receiving a purchase."

FedEx has been a real asset to catalogers, helping the
industry condition its consumers to purchase items as late as Dec.
22.

"FedEx has really been the leader in working with the
catalog industry," Mr. Sroge said. "The idea that the company might
be unreliable in the last few days of the Christmas season is
really a concern."

FedEx is operating with a business-as-usual mentality.
The company has been issuing daily reports that deliveries are
proceeding normally and future flight operations are adequately
staffed.

"We have had a lot of support from our catalog customers,
who told us they will stay with us," said Shirlee Clark, media
relations specialist at FedEx.

The complications started to surface when talks with the
Air Line Pilots Association broke down late last month. The
union ordered pilots to refuse overtime. Reportedly, about half
of FedEx's 2,900 pilots belong to the union.

Even though the company seems to be calm about the union
situation, a group of non-union pilots decided to take action through
advertising.

Locally, the group of non-union pilots placed a
quarter-page ad in The (Memphis, Tenn.) Commercial Appeal in FedEx's
hometown, pledging their loyalty to FedEx and emphasizing the
company's dependability.

The ad, produced by Archer Malmo, is tagged "Paid for out of
the pockets of the loyal pilots of FedEx." The ad was in response
to an Air Line Pilots Association ad that ran earlier in the
week locally and in USA Today.

FedEx competitors DHL Worldwide Express, United Parcel
Service and the U.S. Postal Service haven't been able to determine
whether extra business, or phone inquiries to their service
centers, is a direct result of FedEx's trouble in the air. And no one is
ready to spring any new marketing plans to acquire possible extra
FedEx business.

A DHL spokesman said customer service calls are up 10% to
15% compared with the week prior to the labor problems, but the
company believes that's a result of the recent Thanksgiving
holiday and the fact that holiday shipping is heating up.

"We have had larger customers in selected markets who
split between DHL and Federal tell us they will use us exclusively
if this becomes a problem to them," said Dean Christon, DHL
manager of marketing communications. "We believe some FedEx
customers are nervous but that it is a case by case situation."

UPS said it's taking the high road and doesn't believe it
appropriate to go after FedEx customers.

"We are expecting our own capacity is going to be strained
for the holidays, and it is unlikely we are going to have the
ability to accommodate any significant volume" increase, said Ken
Sternad, public relations manager.

Mr. Sternad said UPS has been contacted by FedEx
customers. "We are telling people we have ground capacity," he said.
UPS handles 1.5 million packages a day and company officials
say they expect that to double in the coming weeks.

"But it is impossible to know where that volume is coming
from," Mr. Sternad said. "We have had more calls, but I don't know if
it is associated with the FedEx situation."

A postal service spokeswoman said there has been a "slight
increase" in Express Mail.